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# In the GMP partnership (to which Elan seeks admittance), the capital balances of Mary, Gene, and Pat, who share income in the ratio of 6:3:1, are

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Mary \$266,400
Gene 133,200
Pat 44,400

Required:
a. If no goodwill or bonus is recorded, how much must Elan invest for a one-third interest?
b. Prepare journal entry for the admission of Elan if she invests \$80,000 for a 20 percent interest and goodwill is recorded.
c. Prepare journal entry for the admission of Elan if she invests \$200,000 for a 20 percent interest. Total capital will be \$600,000; the partners use the bonus method.

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A. \$222,000

B. Dr Cash \$80,000

Dr Goodwill 31,000

Cr Elan, Capital \$111,000

C. Dr Cash \$200,000

Cr Mary, Capital \$40,080

Cr Gene, Capital \$20,040

Cr Pat, Capital \$6,680

Cr Elan, Capital \$133,200

Explanation:

A. Calculation to determine how much must Elan invest for a one-third interest

First step is to calculate the 2/3 of the total resulting capital balance of Mary, Gene, and Pat

Mary \$266,400

Gene 133,200

Pat 44,400

Total \$44,000

Total resulting capital balance=\$444,000/2/3)

Total resulting capital balance= \$444,000 / .666666

Total resulting capital balance=\$ 666,000

Second step is to calculate how much must Elan invest for a one-third interest

Investment for one-third interest= \$666,000 x 1/3

Investment for one-third interest=\$666,000 x .333333

Investment for one-third interest=221,999.9

Investment for one-third interest=\$222,000 (Approximately)

Therefore how much must Elan invest for a one-third interest is \$222,000

B. Preparation of journal entry for the admission of Elan if she invests \$80,000 for a 20 percent interest and goodwill is recorded.

First step is to calculate the Estimated amount of goodwill to the new partner

Estimated total capital \$ 555,000

[(\$444,000÷(100%-20%)]

Less Total net assets (524,000)

(\$444,000 + \$80,000)

Estimated goodwill to the new partner \$31,000

(\$ 555,000-\$524,000)

Now let prepare the journal entry

Dr Cash \$80,000

Dr Goodwill 31,000

Cr Elan, Capital \$111,000

[(444,,000÷(100%-20%)*20%)]

=(\$444,000/80%*20%)

=\$111,000

C. Preparation of journal entry for the admission of Elan if she invests \$200,000 for a 20 percent interest while the Total capital will be \$600,000.

First step

Amount Invested in partnership \$ 20,000

Less New partner's book value (\$133,200)

[(\$444,000 + \$222,000) x .20]

Difference \$66,800

(\$200,000-\$133,200)

Now let prepare the journal entry using ratio 6:3:1

Dr Cash \$200,000

Cr Mary, Capital \$40,080

(\$66,800 x .60)

Cr Gene, Capital \$20,040

(\$66,800 x .30)

Cr Pat, Capital \$6,680

(\$66,800 x .10)

Cr Elan, Capital \$133,200

(\$666,000 x .20)

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